HomeMy WebLinkAboutResolution No. 2016-C10RESOLUTION NO. 2016-C10
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA,
CALIFORNIA ADOPTING AND APPROVING THE DEBT POLICY
WHEREAS, the City of Azusa ("City") desires to maintain current and comprehensive financial
policies; and
WHEREAS, there is a need to formalize the policies regarding the debt issuance; and
WHEREAS, the City desires to adopt a Debt Policy (Exhibit A);
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Azusa,
California does hereby find, determine and declare as follows:
Section 1. Approve and adopt the Debt Policy attached hereto as Exhibit A;
Section 2. Authorize City staff to take all actions necessary to carry out the Policy.
PASSED, APPROVED and ADOPTED this 19`s day of January, 2016.
41
Joseph Ro ero Rocha
Mayor
ATTEST:
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss.
CITY OF AZUSA )
I HEREBY CERTIFY that the foregoing Resolution No. 2016-C10 was duly adopted
by the City Council of the City of Azusa at a regular meeting thereof, held on the 19°i day of
January, 2016, by the following vote of Council:
AYES: COUNCILMEMBERS: GONZALES, MACIAS, ALVAREZ, ROCHA
NOES: COUNCILMEMBERS: NONE
ABSENT: COUNCILMEMBERS: CARRILLO
APPROVED AS TO FORM:
Best
Besl & Krieger, L P
City A )Vney
DEBT POLICY
(See Exhibit A)
Debt Policy
EXHIBIT A
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EXHIBIT A
CHK of Azusa Debt Policy
Table of Contents
SECTION1 —POLICY...................................................................................................................................3
1.1. OBJECTIVES..................................................................................................................................
3
1.2. BUDGET INTEGRATION....................................................................................................................
3
1.3. FINANCING PRIORITIES...................................................................................................................3
1.4. FORMER REDEVELOPMENT AGENCY DEBT OBLIGATIONS.................................................................
3
1.5. REVIEW.........................................................................................................................................4
SECTION 2 — METHODS OF FINANCING...................................................................................................4
2.1. CASH FUNDING..............................................................................................................................4
2.2. INTERFUND BORROWING................................................................................................................
4
2.3. BANK LOANS/LINES OF CREDIT.......................................................................................................4
2.4. OTHER LOANS...............................................................................................................................4
2.5. BOND FINANCING.........................:.................................................................................................4
2.6. JOINT POWERS AUTHORITY (JPA)..................................................................................................
4 -
SECTION 3- FINANCING TEAM - ROLES AND SELECTION PROCESS..................................................4
3.1. FINANCING TEAM DEFINITIONS AND ROLES......................................................................................4
3.2. CONSULTANT SELECTION...............................................................................................................
5
SECTION 4 -STRUCTURE AND TERM.......................................................................................................
5
4.1. TERM OF DEBT..............................................................................................................................
5
4.2. DEBT REPAYMENT STRUCTURE......................................................................................................
5
4.3. BOND MATURITY OPTIONS..............................................................................................................
5
4.4. INTEREST RATE STRUCTURE .......... \ ...............................................................................................
5
4.5. CREDIT ENHANCEMENT..................................................................................................................5
4.6. DEBT SERVICE RESERVE FUND.....................................................................................................
5
4.7. CALL OPTIONS/REDEMPTION PROVISIONS.......................................................................................6
4.8. DEBT LIMITS..................................................................................................................................6
4.9. DERIVATIVES.................................................................................................................................6
4.10. REFUNDINGS.................................................................................................................................6
SECTION 5 -METHOD OF ISSUANCE AND SALE.....................................................................................7
5.1. METHOD OF SALE..........................................................................................................................
7
5.2. INITIAL DISCLOSURE REQUIREMENTS..............................................................................................
7
SECTION 6—CREDITWORTHINESS OBJECTIVES..................................................................................8
6.1. BOND RATINGS..............................................................................................................................9
6.2. RATING AGENCY COMMUNICATIONS................................................................................................9
SECTION 7 - POST ISSUANCE ADMINISTRATION....................................................................................
9
APPENDIX A-GLOSSARYAND MUNICIPAL SECURITIES TERMINOLGY...........................................10
ATTACHMENT A - INTERFUND LOAN POLICY......................................................................................15
ATTACHMENT B - POST -ISSUANCE COMPLIANCE POLICY FOR BOND ISSUANCE ........................18
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SECTION 1 —POLICY
This Debt Policy sets forth debt management objectives for the City, and other related entities, and
establishes general parameters for issuing and administering the City's debt. It primarily addresses debt
securities issued by the City in public or private bonds markets. Defined terms herein shall have the
meaning set forth in the Glossary attached hereto.
While this policy provides guidelines for general use, it allows for exceptions. In the event there are
proposed exceptions to Debt Policy guidelines when a bond issue is structured, those exceptions will
be discussed in the applicable staff reports at the time the bond issue is docketed for City Council
consideration.
1.1. Objectives
The purpose of the policy is to assist the City in the pursuit of the following equally important
objectives, while providing full and complete financial disclosure and ensuring compliance with
applicable state and federal laws:
• Minimize debt service and issuance costs;
• Maintain access to cost-effective borrowing;
• Achieve the highest possible credit rating;
• Achieve full and timely repayment of debt.
1.2. Budget Integration
A bond issue can be utilized to finance a capital project. Bond proceeds are not to be used to fund
operating expenses. The decision to incur new indebtedness should be integrated with the City
Council adopted annual Operating Budget and Capital Improvement Program Budget. The annual
debt service payments shall be included in the Operating Budget.
1.3. Financing Priorities
The Finance Director shall be responsible for analyzing a financing proposal to determine if it is
beneficial to the City and conforms to the City's long-term financial planning objectives.
An analysis of proposed debt may include:
• Confirmation that the capital project is eligible for bond financing;
• Review of all available financing instruments for the project and determination of the most
cost effective option;
• Estimates of total cost of the capital project including its design, construction cost, cost of
furnishings, fixtures and equipment;
• Source of revenue to fund the annual debt service;
• Analysis of the municipal bond market, including economic and interest rate trends;
• Alternative bond structures;
• Cost analysis of bond insurance;
• Evaluation of timing of when the City, or related entity, should enter the bond market.
1.4. Former Redevelopment Agency Debt Obligations
Due to changes in the law affecting California redevelopment agencies with the passage of AB X1
26 (as subsequently amended by Assembly Bill 1484), the Redevelopment Agency of the City of
Azusa was dissolved as of February 1, 2012, and its operations substantially eliminated except
for the continuation of certain enforceable obligations to be administered by the City of Azusa as
the successor agency. The terms of AB X1 26 and subsequent legislation require successor
agencies to administer the outstanding bond obligations including debt service, reserve set -asides,
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EXHIBIT A
and any other obligations re
refinance outstandinq bonds.
1.5. Review
Recognizing that cost-effective access to the capital market depends on prudent management of
the City's debt program, an annual review of the debt policy should be performed. Any substantive
changes to the policy shall be brought to City Council for consideration and approval.
SECTION 2 — METHODS OF FINANCING
The Finance Director will investigate all possible project financing alternatives including, but not limited to,
bonds, loans, state bond pools, and grants.
2.1. Cash Funding
The City funds a significant portion of capital improvements on a "pay-as-you-go" basis. As part of a
"pay as you go" strategy, the City will first look for grant funding for capital projects.
2.2. Interfund Borrowing
The City may borrow internally from other funds with surplus cash in lieu of issuing bonded debt.
Warranting the use of this type of borrowing could include short-term rash flow imbalances due to
grant terms, interim financing pending the issuance of bonds, or longterm financing in lieu of
bonds for principal amounts of under $10 million. The City funds from which the money is borrowed
shall be repaid with interest based upon the earning rate of the City's investment pool. The Finance
Director shall also exercise due diligence to ensure that it is financially prudent for the Fund making
the loan. (See ATTACHMENT 1 — Interfund Loan Policy)
2.3. Bank Loans/Lines of Credit
Although the City does not typically utilize lines of credit for the financing of capital projects,
financial institution credit is an option for municipal issuers and may be evaluated as a financing
option.
2.4. Other Loans
The City will evaluate other loan programs.
2.5. Bond Financing
The City may issue any bonds which are allowed under federal and state law including but not
limited to general obligation bonds, certificates of participation, revenue bonds, assessment district
bonds, and special tax bonds.
While conduit financings do not constitute a general obligation of the issuer, the same level of due
diligence prior to bond issuance is required.
Notes are common in the municipal market and may be issued by the City.
2.6. Joint Powers Authority (JPA)
In addition to some of the long and short term financing instruments described in Sections 2.1
through 2.5, the City may also consider joint arrangements with other governmental agencies when
a project serves the public interest beyond City boundaries.
SECTION 3 - FINANCING TEAM — ROLES AND SELECTION PROCESS
3.1. Financing Team Definitions and Roles
The Financing Team shall include City staff and outside consultants necessary to complete a debt
issuance and may include, but are not limited to bond counsel, disclosure counsel, underwriter,
financial advisor, trustee, pricing consultant and/or arbitrage analyst.
Typically, the Finance Director, the City Attorney, the City Manager, and appropriate Department
Head(s) form the City staff portion of the Financing Team. Other staff members or designees may
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EXHIBIT A
City of Azusa Debt Policy
be appointed to the Financing Team.
3.2. Consultant Selection
The City will consider the professional qualifications and experience of consultants as it relates to
the particular bond issue or other financing under consideration. In certain instances, the City will
conduct a request for proposal/qualification process to select such consultants. Other professionals
may be selected by the City Manager or his/her designee on an as -needed basis.
If the City determines from the initial analysis phase that a negotiated sale (Section 5.1) is the best
method of sale for an issue, the City Manager or his/her designee shall select an underwriter
and a separate financial advisor.
SECTION 4 —STRUCTURE AND TERM
4.1. Tenn of Debt
Debt will be structured for the shortest period possible, consistent with a fair allocation of costs to
current and future users. The standard term of long-term debt borrowing is typically 15-30 years.
Consistent with its philosophy of keeping its capital facilities and infrastructure systems in good
condition and maximizing a capital asset's useful life, the City will make every effort to set aside
sufficient current revenues to finance ongoing maintenance needs and to provide reserves for
periodic replacement and renewal. Generally, no debt will be issued for periods exceeding the
useful life or average useful lives of projects to be financed.
4.2. Debt Repayment Structure
In structuring a bond issue, the City will manage the amortization of the debt and, to the extent
possible, match its cash flow to the anticipated debt service payments. In addition, the City will
seek to structure debt with aggregate level debt service payments over the life of the debt.
Structures with uneven debt service will be considered when one or more of the following exist:
• Natural disasters or extraordinary unanticipated external factors make payments on the debt
in the early years prohibitive;
• Such structuring is beneficial to the City's aggregate overall debt payment schedule;
• Such structuring will allow debt service to more closely match project revenues during the
early years of the project's operation.
4.3. Bond Maturity Options
For each issuance, the City will select serial bonds or term bonds, or both. On the occasions where
circumstances warrant, capital appreciation bonds ("CABs") may be used. The decision to use
term, serial or CABs is typically driven by market conditions.
4.4. Interest Rate Structure
The City currently issues securities on a fixed interest rate basis only but may consider adjustable
rates if determined to be beneficial by the Director of Finance. Fixed rate securities ensure budget
certainty through the life of the issue and avoid the volatility of variable rates.
4.5. Credit Enhancement
Credit enhancement may be used to improve or establish a credit rating on a City debt obligation.
Types of credit enhancement include letters of credit, bond insurance and surety policies. The
Finance Director will recommend the use of a credit enhancement if it reduces the overall cost of
the proposed financing or if the use of such credit enhancement furthers the City's overall financial
objectives.
4.6. Debt Service Reserve Fund
Debt service reserve funds are held by the Trustee to make principal and interest payments to
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EXHIBIT A
City of Azusa Debt Policy
bondholders in the event that pledged revenues are insufficient to do so. The City will fund debt
service reserve funds when it is in the City's overall best financial interest.
The size of the reserve fund is generally the lesser of 1) 10% of par, 2) 125% of average annual
debt service and 3) 100% of maximum annual debt service.
In lieu of holding a cash funded reserve, the City may substitute a surety bond or other credit
instrument in its place. The decision to cash fund a reserve fund rather than to use a credit facility is
dependent upon the cost of the credit instrument and the investment opportunities. Additionally, the
City may decide not to utilize a reserve fund if the Finance Director, in consultation with the
underwriter and financial advisor, determines there would be no adverse impact to the City's credit
rating or interest rates.
4.7. Call Options/Redemption Provisions
A call option or optional redemption provision gives the City the right to prepay or retire debt prior to
its stated maturity date. This option may permit the City to achieve interest savings in the future
through the refunding of the bonds. Often the City will pay a higher interest rate as compensation
to the buyer for the risk of having the bond called in the future. In addition, if a bond is called, the
holder may be entitled to a premium payment ("call premium"). Because the cost of call options
can vary depending on market conditions, an evaluation of factors will be conducted in connection
with each issuance. The Finance Director shall evaluate and recommend the use of a call option
on a case by case basis.
4.8. Debt Limits
California Government Code Section 43605 states the City shall not incur bonded indebtedness
payable from the proceeds of property tax which exceeds 15 percent of the assessed value of all
real and personal property of the City. This provision, however, was enacted when assessed
valuation was based upon 25 percent of market value. Effective with the 1981-82 fiscal year, each
parcel is now assessed at 100 percent of market value (as of the most recent change in ownership
for that parcel). In order to reflect the intent of the debt limit stipulation in Section 43605, the 15
percent has been adjusted to one-fourth of that level, or 3.75 percent, of the assessed value of all
real and personal property of the City.
The cumulative annual debt service of all bond issues supported by the General Fund is restricted
to no more than five percent of annual General Fund Revenue.
Bond issues supported by Enterprise Funds should maintain a minimum ratio of net operating
income to annual debt service that the Finance Director and the Utility Director conclude is
beneficial to the City. Typically, the higher the ratio the better the rating and the lower the interest
rate paid by theCity.
4.9. Derivatives
Derivative products may have application to certain City borrowing programs. In certain
circumstances these products can reduce borrowing costs and assist in managing interest rate risk.
However, these products carry with them certain risks not faced in standard debt instruments. The
Finance Director shall evaluate the use of derivative products on a case-by-case basis to determine
whether the potential benefits are sufficient to offset any potential costs.
4.10. Refundings
The City shall refinance debt to achieve savings as market opportunities arise. The Finance
Director shall remain cognizant of fluctuations in interest rates for the purpose of identifying
refunding opportunities and prepare a present value analysis identifying the economic effects of a
refunding to determine the value of refunding.
Refundings may be undertaken in order to:
• Take advantage of lower interest rates and achieve debt service costs savings;
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EXHIBIT A
City of Azusa Debt Policy
• Eliminate restrictive or burdensome bond covenants;
• Restructure debt to either lengthen the duration of debt or free up reserve funds.
Generally, the City shall strive to achieve a minimum of three percent net present value savings for
a current refunding and a minimum of five percent net present value savings for an advance
refunding. Upon the advice of the Finance Director and with the assistance of the financial advisor
and bond counsel, the City will consider undertaking refundings for other than economic purposes
upon a finding that such a restructuring is in the City's overall best financial interest.
SECTION 5 — METHOD OF ISSUANCE AND SALE
5.1. Method of Sale
Debt issues are sold to a single underwriter or to an underwriting syndicate, either through a
competitive sale or a negotiated sale. A negotiated sale may involve the sale of securities to
investors through an underwriter or the private placement of the securities with a financial institution
or other sophisticated investor. The selected method of sale will be that which is most beneficial to
the City in terms of lowest net interest rate, most favorable terms in financial structure, and market
conditions.
The City will use competitive sales as the primary means of selling bonds. The City, however,
reserves the option of pursuing a negotiated sale if there is evidence of volatile market conditions,
complex security features, or other overriding factors. If the negotiated sale option is utilized, the
Finance Director, with the approval of City Council, will negotiate the best possible interest rates for
the City. The overall objective is to obtain the lowest possible interest cost and provide pricing
transparency.
5.2. Initial Disclosure Requirements
The City acknowledges its disclosure responsibilities. Under the guidance of Disclosure Counsel,
the City will distribute or cause an underwriter to distribute its Preliminary Official Statement and
final Official Statement (neither is typically required in a private placement, although in some cases
a "private placement memorandum" may be required by the investor).
The Director of Finance shall be responsible for soliciting "material" information (as defined in
Securities and Exchange Commission Rule 10b-5) from City departments and identifying
contributors who may have information necessary to prepare portions of the Official Statement or
who should review portions of the Official Statement. In doing so, the Financing Team shall confirm
that the Official Statement accurately states all "material" information relating to the decision to buy
or sell the subject bonds and that all information in the Official Statement has been critically
reviewed by an appropriate person.
In connection with an initial offering of securities, the City and other members of the Financing
Team will:
• Identify material information that should be disclosed in the Official Statement;
• Identify other persons that may have material information (contributors);
• Review and approve the Official Statement;
• Ensure the City's compliance, and that of its related entities, with federal and state securities
laws.
The City's appropriate Finance staff shall contact the individuals and departments identified as
contributors as soon as possible in order to provide adequate time for them to perform their
assigned tasks. Contributors shall assist in reviewing and preparing the Official Statement using
his or her knowledge of the City and, if appropriate, by discussing the Official Statement with other
members of the contributor's department to ensure accuracy.
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Qy of Azusa Debt Policy
The Finance Director shall review the Official Statement, identify any material differences in the
presentation of financial information from the financial statements and ensure there are no
misstatements or omissions of material information in any sections that contain information
prepared by the Finance Department or of relevance to the finances of the City.
The City Attorney (or designee) shall review the Official Statement descriptions of (i) any material
current, pending or threatened litigation, (ii) any material settlements or court orders and (iii) any
other legal issues that are material information for purposes of the Official Statement.
Following receipt of the Official Statement from the Financing Team,, the appropriate City staff,
identified in 3.1, or their designee, ("Disclosure Review Group") shall critically evaluate the Official
Statement for accuracy and compliance with federal and state securities laws, and shall, if
appropriate, ask questions of the Financing Team and of any contributor or other person who
reviewed or drafted any section of the Official Statement. The Disclosure Review Group may
instruct the Financing Team to solicit information or review from additional contributors before
approving the Official Statement. Once the Disclosure Review Group has completed its evaluation
and the Financing Team has responded appropriately, the Official Statement must be presented to
the City Council forapproval.
The Disclosure Review Group is an internal working group of City staff and not a decision-making
or advisory body subject to the provisions of the Ralph M. Brown Act (Government Code Sections
54950 et seq.).
The approval of an Official Statement shall be placed on the Department Reports portion of the City
Council agenda and shall not be considered as a Consent Calendar item. The staff report will
summarize the City Council's responsibilities with respect to the Official Statement and provide the
City Council the opportunity to review a substantially final Official Statement. The City Council shall
undertake such review as deemed necessary by the City Council to fulfill the City Council's
securities law responsibilities.'
For any privately placed debt with no Official Statement, the Disclosure Review Group must be
provided with the final staff report describing the issue and such other documents the Disclosure
Review Group may request before the transaction is approved by the City Council.
6.3. Continuing Disclosure Compliance
The City Manager will designate a continuing disclosure agent to regularly monitor compliance
according to 15c2-12 (the "Continuing Disclosure Agent"). The Continuing Disclosure Agent will
assemble all Continuing Disclosure certificates and agreements and prepare a calendar of due
dates for annual disclosure and preparation dates ahead of annual disclosure dates. The City may
have a firm to provide such services and report directly to City Manager.
The Continuing Disclosure Agent shall monitor, on a regular basis, all City transactions which are
rated by a nationally recognized rating agency, and shall report any rating changes within 10 days.
The Continuing Disclosure Agent shall monitor compliance of transactions with covenant
compliance on a semi-annual basis and report any "event disclosure," pursuant to any continuing
disclosure obligation, within 10 days of such event. The Continuing Disclosure Agent shall identify
any incidents of non-compliance and prepare a report to the City Manager, Director of Finance and
City Attorney. Such report shall include recommendations to cure any non-compliance issue.
The Continuing Disclosure Agent shall annually meet with a representative of the City Manager
Office, Finance Department and City Attorney's Office to discuss compliance with disclosure
requirements.
SECTION 6 — CREDITWORTHINESS OBJECTIVES
Ratings are a reflection of the general fiscal soundness of the City and the capabilities of its management.
Typically, the higher the credit ratings are, the lower the interest cost is on the City's debt issues. To
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EXHIBIT A
City of Azusa Debt Policy
enhance creditworthiness, the City is committed to prudent financial management, systematic capital
planning, and long-term financial planning. The City recognizes that external economic, natural, or other
events may, from time to time, affect the creditworthiness of its debt.
The most familiar nationally recognized bond rating agencies are Standard and Poor's, Moody's Investors
Service, and Fitch Ratings. When issuing a credit rating, rating agencies consider various factors
including but not limited to:
• City's fiscal status;
• City's general management capabilities;
• Economic conditions that may impact the stability and reliability of debt repayment sources;
• City's general reserve levels;
• City's debt history and current debt structure;
• Project being financed;
• Covenants and conditions in the governing legal documents.
6.1. Bond Ratings
The Financing Team will assess whether a credit rating should be obtained for an issuance. The
City typically seeks a rating from at least one nationally recognized rating agency on new and
refunded issues being sold in the public market. The Finance Director, working with the Financing
Team, shall be responsible for determining which of the major rating agencies the City shall request
provide a rating. When applying for a rating on an issue, the City shall prepare a formal
presentation of the City's finances and developments within the City which will be reviewed by the
Disclosure Review Group (Section 5.2) before its presentation to a rating agency.
6.2. Rating Agency Communications
The Finance Director is responsible for maintaining relationships with the rating agencies that
assign ratings to the City's various debt obligations. This effort shall include providing the rating
agencies with the City's financial statements, if applicable, as well as any additional information
requested.
SECTION 7 - POST ISSUANCE ADMINISTRATION
A post -issuance policy was adopted by the City on May 7, 2012. (See ATTACHMENT 2 — Post Issuance
Compliance Policy for Bond)
1 The Securities and Exchange Commission (the "SEC"), the agency with regulatory authority over the City's compliance
with the federal securities laws, has issued guidance as to the duties of the City Council with respect to its approval of the
POS. In its "Report of Investigation in the Matter of County of Orange, California as it Relates to the Conduct of the
Members of the Board of Supervisors' (Release No. 36761 / January 24, 1996) (the "Release"), the SEC stated that, if a
member of the City Council has knowledge of any facts or circumstances that an investor would want to know about
prior to investing in the bonds, whether relating to their repayment, tax-exempt status, undisclosed conflicts of interest
with interested parties, or otherwise, he or she should endeavor to discover whether such facts are adequately disclosed in
the Official Statement. In the Release, the SEC stated that the steps that a member of the City Council could take include
becoming familiar with the POS and questioning staff and consultants about the disclosure of such facts.
APPENDIX A — GLOSSARY AND MUNICIPAL SECURITIES TERMINOLGY
Ad Valorem Tax: A tax calculated "according to the value" of property. Such a tax is based on the
assessed valuation of real property and a valuation of tangible personal property.
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City of Azusa Debt Policy
Advance Refunding: Refunding bonds that are issued more than 90 days prior to the date upon which
the refunded bonds will be redeemed. Proceeds of the advance refunding bonds are placed into an
escrow account with a fiduciary and used to pay interest and principal on the refunded bonds and then
used to redeem the refunded bonds at their maturity or call date.
Arbitrag a: The gain that may be obtained by borrowing funds at a lower (often tax-exempt) rate and
investing the proceeds at higher (often taxable) rates. The ability to earn arbitrage by issuing tax-exempt
securities has been severely curtailed by the Tax Reform Act of 1986, as amended.
Assessed Valuation: The appraised worth of property as set by a taxing authority through assessments
for purposes of ad valorem taxation.
Assessment District Bonds: Bonds issued for public improvements benefiting property within
assessment districts created pursuant to the Improvement Act of 1911 and the Municipal Improvement
Act of 1913.
ate: A security that represents an obligation to pay a specified amount of money on a specific date in
the future, typically with periodic interest payments.
Bond Anticipation Notes fBANSI: Short-term notes issued usually for capital projects and paid from
the proceeds of the issuance of long-term bonds. Provide interim financing in anticipation of bond
issuance.
Bond Counsel: An attorney retained by the issuer to give a legal opinion concerning the validity of
securities. The bond counsel's opinion usually addresses the subject of tax exemption. Bond counsel
may prepare or review and advise the issuer regarding authorizing resolutions, trust indentures and
litigation.
Bond Insurance: A type of credit enhancement whereby an insurance company indemnifies an investor
against default by the issuer. In the event of failure by the issuer to pay principal and interest in full and
on time, investors may call upon the insurance company to do so. Once issued, the municipal bond
insurance policy is generally irrevocable. The insurance company receives its premium when the policy is
issued.
Bond Resolution: Resolution adopted by the City Council authorizing the issuance of bonds, approving
the Notice of Sale and the Official Statement.
Book -Entry: Bonds that are issued in fully registered form but without certificates of ownership.
Call Option: The right to redeem a bond prior to its stated maturity, either on a given date or
continuously. The call option is also referred to as the optional redemption provision. Often a "call
premium' is added to the call option as compensation to the holders of the earliest bondscalled.
vital Annreciation Bond: A municipal security on which the investment return on an initial principal
amount is reinvested at a stated compounded rate until maturity, at which time the investor receives a
single payment representing both the initial principal amount and the total investment return.
CAFR: The City's Comprehensive Annual Financial Report.
Certificates of Participation: A financial instrument representing a proportionate interest in payments
such as lease payments by one party (such as a city acting as a lessee) to another party (often atrustee).
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Commercial Paper: Short-term debt instrument. The debt is usually issued at a discount, reflecting
prevailing market interest rates.
Comnetitive Sale: A sale of bonds in which an underwriter or syndicate of underwriters submit sealed
bids to purchase the bonds. Bids are awarded on a true interest cost basis ("TIC"), providing that other
bidding requirements are satisfied. Competitive sales are recommended for simple financings with a
strong underlying credit rating. This type of sale is in contrast to a Negotiated Sale.
Conduit Financina: The issuance of securities by a governmental entity to finance a project that will
primarily benefit a third party. The security for this type of financing is the credit of the third party. Usually
such securities do not constitute general obligations of the issuer since the private entity is liable for
generating the pledged revenues for repayment. Industrial development bonds are a common type of
conduit refinancing.
Continuing Disclosure: The requirement by the Securities and Exchange Commission for most issuers
of municipal debt to provide current financial information to the Municipal Securities Rulemaking Board for
access by the general marketplace.
Coupon Rate: The interest rate on specific maturities of a bond issue. While the term "coupon" is
derived from the days when virtually all municipal bonds were in bearer form with coupons attached, the
term is still frequently used to refer to the interest rate on different maturities of bonds in registered form.
Credit Rating Agency: A company that rates the relative credit quality of a bond issue and assigns a
letter rating. These rating agencies include Moody's Investors Service, Standard & Poor's, and Fitch
Ratings.
Current Refunding: Refunding bonds are issued 90 days or less before the date upon which the
refunded bonds will be redeemed.
CUSIP Number: The term CUSIP is an acronym for the Committee on Uniform Securities Identification
Procedures. An identification number is assigned to each maturity of an issue. The CUSIP numbers are
intended to help facilitate the identification and clearance of municipal securities.
Debt Limit: The maximum amount of debt that is legally permitted by a jurisdiction's charter, constitution,
or statutes.
Debt Service: The amount necessary to pay principal and interest requirements on outstanding bonds
for a given year or series of years.
Default: The failure to pay principal or interest in full or on time and, in some cases, the failure to comply
with non-payment obligations after notice and the opportunity to cure.
Defeasance: Providing for the payment of principal, premium (if any) and interest on debt through.the
call date or scheduled principal maturity in accordance with the terms of the debt. A legal defeasance
usually involves establishing an irrevocable escrow funded with only cash and U.S. Government
obligations.
Depository Trust Company (DTC1: A limited purpose trust company organized under the New York
Banking Law. The DTC facilitates the settlement of transactions in municipal securities.
Derivative: A financial instrument which derives its own value from the value of another instrument,
usually an underlying asset such as a stock, bond, or an underlying reference such as an interest rate
index.
Disclosure Counsel: An attorney retained to provide advice on issuer disclosure obligations, to prepare
the official statement and to prepare the continuing disclosure undertaking.
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EXHIBIT A
City of Azusa Debt Policy
Discount: The difference between a bond's par value and the price for which it is sold when the latter is
less than par.
Enterorise Activity: A revenue generating project or business. The project often provides funds
necessary to pay debt service on securities issued to finance the facility. Common examples include
water and sewer treatment facilities and utility facilities.
Financial Advisor: A consultant who provides the issuer with advice on the structure of the bond issue,
timing, terms and related matters for a new bond issue.
Financina Team: The working group of City staff and outside consultants necessary to complete a debt
issuance.
General Obligation Bond: A bond secured by an unlimited property tax pledge. Requires a two-thirds
vote by the electorate. GO bonds usually achieve lower rates of interest than other financing instruments
since they are considered to be a lower risk.
Indenture: A contract between the issuer and the trustee stipulating the characteristics of the financial
instrument, the issuer's obligation to pay debt service, and the remedies available to the trustee in the
event of default.
Industrial Development Bonds: Securities issued to finance the construction or purchase of industrial,
commercial or manufacturing facilities to be purchased by or leased to a private user. These securities
are backed by the credit of the private user and generally are not considered liabilities of the
governmental issuer.
Issuance Costs: The costs incurred by the bond issuer during the planning and sale of securities.
These costs include but are not limited to financial advisory, bond counsel, disclosure counsel, printing,
advertising costs, rating agencies fees, and other expenses incurred in the marketing of an issue.
Lg=: An obligation wherein a lessee agrees to make payments to a lesser in exchange for the use of
certain property. The term may refer to a capital lease or to an operating lease.
Lease Revenue Bonds: Bonds that are secured by an obligation of one party to make annual lease
payments to another.
Letter of Credit An unconditional pledge of the bank's credit which is used to guarantee payment of
principal and interest on debt in the event insufficient funds are available to meet a debt service
obligation. Letters of credit are most often employed when the stated interest on the City's securities is
variable.
Line of Credit: A contract with a financial institution, usually a bank, that establishes a maximum loan
balance that the bank will permit the borrower to maintain. The borrower can draw down on the line at any
time, as long as the maximum set in the agreement is not exceeded.
Mortgage Revenue Bonds: Bonds issued for the purpose of providing single-family mortgage financing
or acquisition and construction funds for multi -family housing projects. The bonds are,secured by the
mortgage repayments and project revenue. See Conduit Financing.
Municinal Securities Rulemakina Board (t�jS1 RBI: A self-regulating organization established on
September 5, 1975 upon the appointment of a 15 -member board by the Securities and Exchange
Agreement. The MSRB, comprised of representatives from investment banking firms, dealer bank
representatives, and public representatives, is entrusted with the responsibility of writing rules of conduct
for the municipal securities market.
Neootiated Sale: A sale of securities in which the terms of the sale are determined through negotiation
between the issuer and the purchaser, typically an underwriter, without competitive bidding. The
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EXHIBIT A
negotiated sales process provides control over the financing structure and issuance timing. Negotiated
sales are recommended for unusual financing terms, periods of market volatility and weaker credit quality.
A thorough evaluation of market conditions will be performed to ensure reasonable final pricing and
underwriting spread.
Net Interest Cost (NIC1: A method of computing the interest expense to the issuer of bonds, which may
serve as the basis of award in a competitive sale of a new issue of municipal securities. NIC takes into
account any premium or discount applicable to the issue, as well as the dollar amount of coupon interest
payable over the life of the issue. NIC does not take into account the time value of money (as would be
done in other calculation methods, such as the "true interest cost" (TIC) method). The term "net interest
cost" refers to the overall rate of interest to be paid by the issuer over the life of the bonds.
Official Statement (Pro o - -t ucl: A document published by the issuer in connection with a primary
offering of securities that discloses material information on a new security issue including the purposes of
the issue, how the securities will be repaid, and the financial, economic and social characteristics of the
security for the bonds. Investors may use this information to evaluate the credit quality of the securities.
Original Issue Discount Bonds: Bonds sold at a substantial discount from their par value at the time of
the original sale.
Par Value: The face value or principal amount of a security.
Pension Obliaation Bonds WORM: Financing instruments used to pay some or all of the unfunded
pension liability of a pension plan. POBs are issued as taxable instruments.
Preliminary Official Statement: A version of the Official Statement prepared by or for an issuer of
municipal securities for potential customers prior to the availability of the final Official Statement. Under
SEC Rule 15c2-12, the difference between a Preliminary Official Statement and a final Official Statement
is that the final Official Statement includes "pricing information,' i.e., offering price(s), interest rate(s),
selling compensation, aggregate principal amount, principal amount per maturity, delivery dates, any
other terms or provisions required by an issuer of such securities to be specified in a competitive bid,
ratings, other terms of the securities depending on such matters, and the identity of the underwriter(s).
Premium: The excess of the price at which a bond is sold over its facevalue.
Present Value: The value of a future amount or stream of revenues crexpenditures.
Pricina Consultant: The Pricing Consultant provides a fairness letter to the City or its agent regarding
the pricing of a new issue of municipal securities.
Private Activity Bonds: A bond where bond proceeds are used for private purposes. If deemed a
private activity bond, the interest is not tax exempt unless the use of the proceeds meets certain
requirements of the Internal Revenue Code.
Private Placement: A bond issue that is structured specifically for one purchaser. Private placements
are typically carried out when extraneous circumstances preclude public offerings. A private placement is
considered to be a negotiated sale.
Refunding: A procedure whereby an issuer refinances an outstanding debt issue by issuing a new debt
issue.
Related Entities: Those independent agencies, joint power authorities, special districts, component
units, or other entities created by the City Council or by State law for which the City Council serves as the
governing or legislative body in his or her official capacity, or for which the City has agreed to provide
initial or continuing disclosure in connections with the issuance of securities.
Rule 10b5: Rule adopted by the Securities and Exchange Commission that requires the disclosure of all
material facts and prohibits the omission of facts necessary to make statements not misleading.
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EXHIBIT A
Rule 15c2-12: Rule adopted by the Securities and Exchange Commission setting forth certain obligations
of (i) underwriters to receive, review and disseminate official statements prepared by issuers of most
primary offerings of municipal securities, (ii) underwriters to obtain continuing disclosure agreements from
issuers and other obligated persons to provide ongoing annual financial information on a continuing basis,
and (iii) broker-dealers to have access to such continuing disclosure in order to make recommendations
of municipal securities in the secondary market.
Reserve Fund: A fund established by the indenture of a bond issue into which money is deposited for
payment of debt service in case of a shortfall in current revenues.
Revenue Bond: A bond which is payable from a specific source of revenue and to which the full faith
and credit of an issuer is not pledged. Revenue bonds are payable from identified sources of revenue,
and do not permit the bondholders to compel a jurisdiction to pay debt service from any other source.
Pledged revenues often are derived from the operation of an enterprise.
Secondary Market: The market in which bonds are sold after their initial sale in the new issue market.
Serial Bonds: Bonds of an issue that mature in consecutive years or other intervals and are not subject
to mandatory sinking fund provisions.
Special Tax Bonds: Bonds issued to fund eligible public improvements and paid with special taxes
levied in a community facilities district formed under the Mello -Roos Community Facilities Act of 1982, as
amended.
State Revolving Funds: The State Revolving Fund ("SRF") loan is a low interest loan program for the
construction of water and wastewater infrastructure projects.
Tax Allocation Bonds ITABsI: Bonds issued to fund eligible capital facilities located within a
Redevelopment Project Area. Bonds are secured by a portion of the property taxes collected within the
project area. The Redevelopment Agency of the City of Azusa was dissolved as of February 1, 2012, due
to the passage of AB X1 26. Its operations were substantially eliminated but for the continuation of
certain enforceable obligations to be administered by the City of Azusa as successor agency.
Tax and Revenue Anticioation Notes ITRANSI: Short-term notes issued in anticipation of receiving tax
receipts and revenues at a future date. Proceeds allow the municipality to manage the periods of cash
shortfalls resulting from a mismatch between timing of revenues and timing ofexpenditures.
Term Bonds: Bonds that come due in a single maturity whereby the issuer may agree to make periodic
payments into a sinking fund for mandatory redemption of term bonds before maturity or for payment at
maturity.
True Interest Cost (TICI: Under this method of computing the interest expense to the issuer of bonds,
true interest cost is defined as the rate necessary to discount the amounts payable on the respective
principal and interest payment dates to the purchase price received for the new issue of bonds. Interest is
assumed to be compounded semi-annually. TIC computations produce a figure slightly different from the
"net interest cost" (NIC) method because TIC considers the time value of money while NIC doesnot.
Trustee: A bank retained by the issuer as custodian of bond proceeds and official representative of
bondholders. The trustee ensures compliance with the indenture. In many cases, the trustee also acts
as paying agent and is responsible for transmitting payments of interest and principal to the bondholders.
Underwriter: A broker-dealer that purchases a new issue of municipal securities from the issuer for
resale in a primary offering. The bonds may be purchased either through a negotiated sale with the
issuer or through a competitive sale.
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Page 15
CITY OF AZUSA, CALIFORNIA
INTERFUND LOAN POLICY
EXHIBIT A
November 3, 2014
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Page 16
City of Azusa
INTERFUND LOAN POLICY
DEFINITION
EXHIBIT A
Interfund loans are borrowing of monies from one City fund to another City fund for a specific
purpose and with a requirement for repayment.
PURPOSE
The purpose of the policy is to provide guidelines regarding the establishment, management and
repayment of interfund loans.
INTERFUND LOAN POLICY
General
1.1 Interfund loans maybe used to alleviate cash deficiency and shall be considered temporary
or short-term borrowing of cash and may be made for the following reasons:
• To offset timing differences in cash flow
• To offset timing differences between expenditures and reimbursements
• To provide for advance spending for a capital project prior to securing project
financing
• For other needs as deemed appropriate by City Council
1.2 The term of the interfund loan may continue over a period of more than one year, but must
be temporary in the sense that no permanent diversion of the lending fund results from the
failure to repay by the borrowing fund.
1.3 Interfund loans shall not be used to solve ongoing structural budget issues.
1.4 Interfund loans shall not hinder the accomplishment of any function or project for which
the lending fund was established.
1.5 An analysis will be performed to determine that the borrowing fund will have sufficient
revenues to repay the principal and interest payments over the period of the loan as
required in the loan agreement.
Procedures
2.1 The establishment of interfund loans requires coordination among several parties, including
the department overseeing the funds that would provide or receive the loan, the Finance
Department and the City Attorney's Office. Interfund loans must be approved by the City
Council.
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EXHIBIT A
2.2 The following procedures should be followed in establishing an interfund loan:
a) The loan shall account for borrowing between funds and shall not be available for
appropriation or be considered revenue to the borrowing fund.
b) Interfund loans should be reported as receivables in the lending fund and payables in the
borrowing fund.
c) Loan interest will be recorded as revenue to the lending fund and as expenditure to the
borrowing fund.
d) A loan agreement should be established between the lending fund and the borrowing
fund and include the following:
i) Purpose of Loan
ii) Loan Amount
iii) Term
iv) Repayment Source
v) Rate of Interest - equals the investment earnings the lending fund would have
received had the loan not occurred.
Repayment
3.1 Repayment of the loan is top priority of the borrowing fund once cash is available.
3.2 As part of the annual budget process, the Finance Department should ensure that the loan
repayment is budgeted consistently with the loan terms.
3.3 If the borrowing fund continues to maintain a negative cash balance for periods beyond the
term of the loan, scheduled payments should be postponed until the fund has a positive
cash balance.
a) Interest should continue to accrue and be added to the principal of the loan.
b) Missed scheduled payments shall be reported by the Finance Department to the City
Council.
3.4 If the borrowing fund is an operating fund, it must maintain positive cash balance of at least
10% of its operating expense/expenditure budget to be able to repay the loan; excess cash
balance (over the 10%) should be used to make scheduled payments and catch-up
payments.
Modification
4.1 Modification of loan term, interest rate, and/or repayment schedule of an interfund loan
shall be approved by the City Council.
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Page 18
EXHIBIT A
CITY OF AZUSA, CALIFORNIA
POST -ISSUANCE COMPLIANCE POLICY FOR BOND ISSUES
May 7, 2012
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Page 19
EXHIBIT A
1.
PURPOSE.
The purpose of this Policy is to ensure that the City of Azusa, California (the "Issuer") complies
with applicable requirements of federal tax law necessary to preserve the tax-exempt status of interest on
tax-exempt obligations issued by the Issuer. This Policy is designed to set forth compliance procedures
so that the Issuer utilizes the proceeds of all issues of bonds, certificates of participation, bond
anticipation notes, and tax and revenue anticipation notes (collectively referred to as "Bonds") in
accordance with applicable federal tax requirements, and complies with all other applicable federal
requirements with respect to outstanding Bonds.
To comply with applicable federal tax requirements, the Issuer must confirm that the
requirements are met at the time each Bond issue is issued and throughout the term of the Bonds (until
maturity or redemption). Generally, compliance should include retention of records relating to the
expenditure of the proceeds of each Bond issue, the investment of the proceeds of each Bond issue, and
any allocations made with respect to the use of the proceeds of each Bond issue, sufficient to establish
compliance with applicable federal tax requirements, including records related to periods before the
Bonds are issued (e.g., in the case of reimbursement of prior expenditures) until six (6) years after the
final maturity or redemption date of any issue of the Bond issue.
II.
PROCEDURES.
A. Responsible Official. The Finance Director of the Issuer will identify the officer or other
employee(s) of the Issuer (the "Bond Compliance Officer") who will be responsible for each of the
procedures listed below, notify the current holder of that office of the responsibilities, and provide that
person a copy of these procedures. Upon employee transitions, the Finance Director of the Issuer will
advise any newly -designated Bond Compliance Officer of his/her responsibilities under these procedures
and will ensure the Bond Compliance Officer understands the importance of these procedures. If
employee positions are restructured or eliminated, the Finance Director of the Issuer will reassign
responsibilities as necessary.
B. Issuance of Bonds.
Bond Counsel. The Issuer will retain a nationally -recognized bond counsel law firm ("Bond
Counsel") to deliver a legal opinion upon issuance of each tax-exempt Bond issue. The opinion of Bond
Counsel will be based in part on covenants and representations set forth in the Issuer's Tax Certificate and
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EXHIBIT A
other certificates relating to the Bonds, including covenants and representations concerning compliance
with post -issuance federal tax law requirements that must be satisfied to preserve the tax-exempt status of
interest on the Bonds. As described more fully below, the Issuer will also consult with Bond Counsel and
other legal counsel and advisors, as needed, following issuance of each Bond issue to ensure that
applicable post -issuance requirements in fact are met, so that interest on all Bond issues will be excluded
from gross income for federal income tax purposes so long as any Bonds remain outstanding.
The Bond Compliance Officer and/or other designated Issuer personnel will consult with Bond
Counsel and other legal counsel and advisors, as needed, throughout the Bond issuance process to identify
requirements and to establish procedures necessary or appropriate so that interest on the Bonds will
continue to qualify for federal tax-exempt status. Those requirements and procedures shall be
documented in a Tax Certificate and other certificates and/or other documents finalized at or before
issuance of the Bonds. Those requirements and procedures shall include future compliance with
applicable arbitrage rebate requirements and all other applicable post -issuance requirements of federal tax
law throughout (and in some cases beyond) the term of the Bonds.
Documentation of Tax Requirements. The federal tax requirements relating to each Bond issue
will be set forth in the Tax Certificate executed in connection with the Bond issue, which will be included
in the closing transcript. The certifications, representations, expectations, covenants and factual
statements in the Tax Certificate relate primarily to the restriction on use of the Bond -financed facilities
by persons or entities other than the Issuer, changes in use of assets financed or refinanced with Bond
proceeds, restrictions applicable to the investment of Bond proceeds and other moneys relating to the
Bonds, arbitrage rebate requirements, and economic life of the Bond -financed assets.
Information Reportinn. The Bond Compliance Officer and/or other designated Issuer personnel
will assure filing of information returns on IRS Form 8038-G, no later than the 15" day of the second
calendar month in the calendar quarter following the calendar quarter in which issue of Bonds is issued.
The Issuer will confirm that the IRS Form 8038-G is accurate and is filed in a timely manner with respect
to all Bond issues, including any required schedules and attachments. The Form 8038-G filed with the
IRS, together with an acknowledgement copy (if available) or IRS Notice CP152, will be included as part
of the closing transcript for each Bond issue, or kept in the records related to the appropriate issue of
Bonds.
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Page 21
shall:
EXHIBIT A
C. Application of Bond Proceeds.
Use of Bond Proceeds. The Bond Compliance Officer and/or other designated Issuer personnel
* monitor the use of Bond proceeds and the use of the Bond -financed assets
(e.g., facilities, furnishings or equipment) throughout the term of the Bonds (and in some
cases beyond the term of the Bonds) to ensure compliance with covenants and restrictions
set forth in the applicable Tax Certificate;
* maintain records identifying the assets or portion of assets that were financed or
refinanced with proceeds of each issue of Bonds;
* consult with Bond Counsel and other legal counsel as needed in the review of
any contracts or arrangements involving use of Bond -financed facilities to ensure
compliance with all covenants and restrictions set forth in the applicable Tax Certificate;
* maintain records for any contracts or arrangements involving the use of Bond -
financed facilities as might be necessary or appropriate to document compliance with all
covenants and restrictions set forth in the applicable Tax Certificate; and
* communicate as necessary and appropriate with personnel responsible for the
Bond -financed assets to identify and discuss any existing or planned use of the Bond -
financed assets, to ensure that those uses are consistent with all covenants and restrictions
set forth in the applicable Tax Certificate.
Timely Expenditure of Bond Proceeds. At the time of issuance of any Bonds issued to fund
original expenditures, the Issuer must reasonably expect to spend at least 85% of all proceeds expected to
be used to finance such expenditures (which proceeds would exclude proceeds in a reasonably required
reserve fund) within three (3) years after issuance of such Bonds.' In addition, for such Bonds, the Issuer
must have incurred or expect to incur within six months after issuance original expenditures of not less
than 5% of such amount of proceeds, and must expect to complete the Bond -financed project (the
In the case of short-term working capital financings (e.g., TRANs), the Issuer's actual maximum cumulative cash flow
deficit as of the close of the six-month period commencing on the issue date must be at least equal to 100% of the issue price of
the notes (under the six-month rebate exception, excluding the reasonable working capital reserve) or 90% of the issue price of
the notes (under the statutory safe harbor exception) in order for the notes to be exempt from the rebate requirements.
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Page 22
EXHIBIT A
"Proiect") and allocate Bond proceeds to costs with due diligence.' Satisfaction of these requirements
allows Project -related Bond proceeds to be invested at an unrestricted yield for three (3) years.' Bonds
issued to refinance outstanding obligations are subject to separate expenditure requirements, which shall
be outlined in the Tax Certificate relating to such Bonds. The Issuer's finance staff will monitor the
appropriate capital project accounts (and, to the extent applicable, working capital expenditures and/or
refunding escrow accounts) and ensure that Bond proceeds are spent within the applicable time period(s)
required under federal tax law.
Capital Expenditures. In general, proceeds (including earnings on original sale proceeds) of
Bonds issued to fund original expenditures, other than proceeds deposited in a reasonably required
reserve fund or used to pay costs of issuance, should be spent on capital expenditures." For this purpose,
capital expenditures generally mean costs to acquire, construct, or improve property (land, buildings and
equipment), or to adapt the property to a new or different use. The property financed or refinanced must
have a useful life longer than one (1) year. Capital Expenditures include design and planning costs
related to the Project, and include architectural, engineering, surveying, soil testing, environmental, and
other similar costs incurred in the process of acquiring, constructing, improving or adapting the property.
Capital Expenditures do not include operating expenses of the Project or incidental or routine repair or
maintenance of the Project, even if the repair or maintenance will have a useful life longer than one (1)
year.
D. Use of Bond -Financed Assets.
Ownership and Use of Protect. For the life of the Bond issue, the Project must be owned and
operated by the Issuer (or another state or local governmental entity). At all times while the Bond issue is
outstanding, no more than 10% (or $15,000,000, if less) of the Bond proceeds or the Project may used,
directly or indirectly, in a trade or business carried on by a person other than a state or local governmental
unit ("Private Use').' In addition, not more than 5% (or $5 million, if less) of the proceeds of any Bond
issue may be used, directly or indirectly, to make a loan to any person other than governmental persons.
1 These requirements do not apply to short-term working capital financings (e.g., TRANs).
3 Proceeds of working capital financings (e.g., TRANs) may be invested at an unrestricted yield for thirteen (13)
months..
° Proceeds of working capital financings (e.g., TRANS) need not be spent for capital expenditures.
' This 10% limitation is limited to 5% in cases in which the Private Use is either unrelated or disproportionate to the
governmental use of the financed facility.
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Page 23
EXHIBIT A
Generally, Private Use consists of any contract or other arrangement, including leases, management
contracts, operating agreements, guarantee contracts, take or pay contracts, output contracts or research
contracts, which provides for use by a person who is not a state or local government on a basis different
than the general public. The Project may be used by any person or entity, including any person or entity
carrying on any trade or business, if such use constitutes "General Public Use". General Public Use is
any arrangement providing for use that is available to the general public at either no charge or on the basis
of rates that are generally applicable and uniformly applied.
Management or Operating Agreements. Any management, operating or service contracts
whereby a non-exempt entity is using assets financed or refinanced with Bond proceeds (such as
bookstore, cafeteria or dining facility, externally -managed parking facilities, gift shops, etc.) must relate
to portions of the Project that fit within the allowable private use limitations or the contracts must meet
the IRS safe harbor for management contracts. Any replacements of or changes to such contracts relating
to Bond -financed assets or facilities, or leases of such assets or facilities, should be reviewed by Bond
Counsel. The Bond Compliance Officer shall contact Bond Counsel if there may be a lease, sale,
disposition or other change in use of assets financed or refinanced with Bond proceeds.
Useful Life Limitation. The weighted average maturity of the Bond issue cannot exceed 120% of
the weighted average economic life of the Bond -financed assets. In other words, the weighted average
economic life of the Project must be at least 80% of the weighted average maturity of the Bond issue.
E. Investment Restrictions; Arbitrage Yield Calculations; Rebate.
Investment Restrictions. Investment restrictions relating to Bond proceeds and other moneys
relating to the Bonds are set forth in the Tax Certificate. The Issuer's finance staff will monitor the
investment of Bond proceeds to ensure compliance with applicable yield restriction rules
Use and Control of Bond Proceeds. Unless otherwise provided, unexpended Bond proceeds
(including reserves) are typically held by the trustee for the Bond issue under an indenture or trust
agreement. The investment of Bond proceeds shall be managed by the Issuer. The Issuer shall maintain
appropriate records regarding investments and transactions involving Bond proceeds. The trustee shall
provide regular statements to the Issuer regarding investments and transactions involving Bond proceeds.
Arbitrage Yield Calculations. Investment earnings on Bond proceeds should be tracked and
monitored to comply with applicable yield restrictions and/or rebate requirements. Any funds of the
Issuer set aside or otherwise pledged or earmarked to pay debt service on Bonds should be analyzed to
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Page 24
EXHIBIT A
assure compliance with the tax law rules on arbitrage, invested sinking funds and pledged funds
(including gifts or donations linked or earmarked to the Bond -financed assets)
Rebate. The Issuer is responsible for calculating (or causing the calculation of) rebate liability for
each Bond issue, and for making any required rebate payments. The Issuer will retain an arbitrage rebate
consultant to perform rebate calculations that may be required to be made from time to time with respect
to any Bond issue. The Issuer is responsible for providing the arbitrage rebate consultant with requested
documents and information on a prompt basis, reviewing applicable rebate reports and other calculations
and generally interacting with the arbitrage rebate consultant to ensure the timely preparation of rebate
reports and payment of any rebate.
The reports and calculations provided by the arbitrage rebate consultant are intended to assure
compliance with rebate requirements, which require the Issuer to make rebate payments, if any, no later
than the fifth (5") anniversary date and each fifth (5") anniversary date thereafter through the final
maturity or redemption date of a Bond issue. A final rebate payment must be made within sixty (60) days
of the final maturity or redemption date of a Bond issue.
The Issuer will confer and consult with the arbitrage rebate consultant to determine whether any
rebate spending exceptions may be met. Rebate spending exceptions are available for periods of 6
months, 18 months and 2 years. The Issuer will review the Tax Certificate and/or consult with the
arbitrage rebate consultant or Bond Counsel for more details regarding the rebate spending exceptions.
In the case of short-term working capital financings, such as tax and revenue anticipation notes, if
there is concern as to whether or not the Issuer has met its requisite maximum cumulative cash flow
deficit with respect to its short-term working capital notes, the services of a rebate analyst should be
engaged to determine whether either the six-month spending exception or the statutory safe harbor
exception to the rebate rules is met (in which case no rebate would be owed) or whether the proceeds of
the notes are subject, in whole or in part, to rebate.
Copies of all arbitrage rebate reports, related return filings with the IRS (i.e., IRS Form 8038-T),
copies of cancelled checks with respect to any rebate payments, and information statements must be
retained as described below. The responsible official of the Issuer described in Subsection A of this Part
II will follow the procedures set forth in the Tax Certificate entered into with respect to any Bond issue
that relate to compliance with the rebate requirements.
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Page 25
EXHIBIT A
F. Record Retention.
Allocation of Bond Proceeds to Expenditures. The Issuer shall allocate Bond proceeds to
expenditures for assets, and shall trace and keep track of the use of Bond proceeds and property financed
or refinanced therewith.
Record Keeping Requirements. Copies of all relevant documents and records sufficient to
support an assertion that the tax requirements relating to a Bond issue have been satisfied will be
maintained by the Issuer for the term of a Bond issue (including refunding Bonds, if any) plus six (6)
years, including the following documents and records:
• Bond closing transcripts;
• Copies of records of investments, investment agreements, credit enhancement
transactions, financial derivatives (e.g., an interest rate swap), arbitrage reports and
underlying documents, including trustee statements;
• Copies of material documents relating to capital expenditures financed or refinanced by
Bond proceeds, including (without limitation) purchase orders, invoices, trustee
requisitions and payment records, as well as documents relating to costs reimbursed with
Bond proceeds and records identifying the assets or portion of assets that are financed or
refinanced with Bond proceeds;
• All contracts and arrangements involving private use, or changes in use, of the Bond -
financed property;
• All reports and documents relating to the allocation of Bond proceeds and private use of
Bond -financed property; and
• Itemization of property financed with Bond proceeds, including placed in service dates.
• In the case of short-term working capital financings, such as tax and revenue anticipation
notes, information regarding the Issuer's revenue, expenditures and available balances
sufficient to support the Issuer's maximum cumulative cash flow deficit.
BI.
POST -ISSUANCE COMPLIANCE.
A. In General. The Issuer will conduct periodic reviews of compliance with these
procedures to determine whether any violations have occurred so that such violations can be remedied
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Page 26
EXHIBIT A
through the "remedial action" regulations (Tress. Reg. Section 1.141-12) or the Voluntary Closing
Agreement Program (VCAP) described in IRS Notice 2008-31 (or successor guidance). If any changes or
modifications to the terms or provisions of a Bond issue are contemplated, the Issuer will consult Bond
Counsel. The Issuer recognizes and acknowledges that such modifications could result in a "reissuance"
of the Bonds for federal tax purposes (i.e., a deemed refunding) and thereby jeopardize the tax-exempt
status of interest on the Bonds after the modifications.
The Bond Compliance Officer and/or other designated Issuer personnel will consult with Bond
Counsel and other legal counsel and advisors, as needed, following issuance of each issue of the Bonds to
ensure that all applicable post -issuance requirements in fact are met, so that interest on the Bonds will be
excluded from gross income for federal income tax purposes so long as any Bonds remain outstanding.
This will include, without limitation, consultation in connection with future contracts with respect to the
use of Bond -financed assets and future contracts with respect to the use of output or throughput of Bond -
financed assets.
Whenever necessary or appropriate, the Issuer will engage an expert advisor as arbitrage rebate
consultant to assist in the calculation of arbitrage rebate payable in respect of the investment of Bond
proceeds.
B. Private Use. The Issuer will maintain records identifying the assets or portion of assets
that are financed or refinanced with proceeds of a Bond issue, including the uses and the users thereof
(including terms of use and type of use). Such records may be kept in any combination of paper or
electronic form. In the event the use of Bond proceeds or the assets financed or refinanced with Bond
proceeds is different from the covenants, representations or factual statements in the Tax Certificate, the
Issuer will promptly contact and consult with Bond Counsel to ensure that there is no adverse effect on
the tax-exempt status of the Bond issue and, where appropriate, will remedy any violations through the
"remedial action" regulations (Treas. Reg. Section 1.141-12), the Voluntary Closing Agreement Program
(VCAP) described in IRS Notice 2008-31 (or successor guidance), or as otherwise prescribed by Bond
Counsel.
Eff. 01/19/2015
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